“It’s terrible timing,” said Gokcen, 47, a principal at a San Jose elementary school. Yasin, 47, a San Jose State University business professor, added, “It’s expensive.”
With the COVID pandemic creating a severe computer chip shortage, new vehicles are pricey and scarce, pushing many buyers toward used cars, which is driving up prices for those, too. Around the Bay Area, where prices for new and used cars top the national average, and new cars are selling at the second-highest prices in the U.S., would-be buyers suffer unprecedented sticker shock and salespeople keep lonely vigils over lots that before the viral outbreak overflowed with factory-fresh cars.
“In over 22 years in this business, I’ve never seen anything like this,” said Dmitriy Shamilov, senior sales manager at Envision Honda in Milpitas. “We usually have more than 700 new cars on this lot and now I have less than 10.”
At Capitol Chevrolet in San Jose, the Cerans were eyeing a used Tesla Model Y compact SUV. The couple in many ways represents today’s typical Bay Area car buyers. They want to pass along their nine-year-old Honda CRV to their son but need to replace it to commute. “We’re looking for an electric car because gas prices are going up,” Yasin said.
Auto-industry analyst Ivan Drury said vehicle buyers make purchases when they need to, even if prices or financing costs are higher, and in the Bay Area, where environmental consciousness and incomes are relatively high, many consumers favor smaller cars, electric vehicles and luxury brands. “The Bay Area is not immune to gas prices, either,” Drury added. For large numbers of area residents, public transportation is not an efficient commuting option, said Drury, of auto-industry data firm Edmunds. “You really have to have your personal transportation,” he said.
The Bay Area has the second-highest new car prices in America so far this year, trailing only Los Angeles, according to Edmunds. New cars in this region have been selling for an average of $50,000, compared to the U.S. average of $46,000, and used cars averaged $30,000, against $29,000 for the U.S.
New car prices crossed into record territory in June, after used cars did in December, according to Cox Automotive. In 2019, before the pandemic kneecapped car production and boosted demand for semiconductor chips that fill them by the hundreds and are used in consumer electronics, an average Bay Area new car went for $40,000 and a used car for $23,000, according to Edmunds.
Because of the chip shortage, dealers are selling some new vehicles without chips for certain functions, such as heated seats or driver assistance. Customers can at least get a vehicle, and come back later for the chips.
But some buyers are waiting until their preferred options are available. And some option configurations “aren’t even able to be built at all,” said Tyler Block, general sales manager at Capitol Buick/GMC in San Jose. “Sales are down because we’re not able to get proper inventory,” Block said, adding that he should have more than 125 new vehicles on the lot but has 14.
Profit margins on new cars have gone up, but not all vehicles are marked up, Block said. And car makers are rewarding dealerships that sell more cars by shipping them more cars, giving dealers an incentive to sell, Block said. “Not all my inventory has markups,” he said. His GMC Yukon AT4 SUVs and diesel Sierra 2500 pickups are marked up, but his GMC Terrain and Acadia SUVs remain at the manufacturer’s suggested retail price, and Buicks are discounted “because “they’re just a little harder to sell,” Block said.
Would-be new-car buyers are doing more “cross-shopping” among automakers, their brand loyalty withering in the face of sky-high costs, Block said. Some look at new-vehicle scarcity and sticker prices and decide, “I’ll just go and grab a pre-owned vehicle,” Block said. That shift has launched a desperate scramble among dealers for used cars to fill out the asphalt expanses once bursting with new vehicles. “We’ve had to switch focus,” Block said.
But with fewer sales of new vehicles, fewer trade-ins enter the used-vehicle market, analyst Drury said. Rental car companies are hanging onto vehicles they would have sold en masse in pre-pandemic days. It used to be that large numbers of leased cars went to auction after a few years and ended up on dealers’ lots, Drury said. Now, consumers are buying their leased vehicles, saying, “I don’t want to deal with paying way too much money for a used car or a new car, so I’m just going to keep the one I have.”
Hefty prices even for older, high-mileage vehicles can provide a silver lining for people who have cars they don’t need, Drury noted. “You’ve got a fantastic asset sitting in your driveway,” he said.
Envision Honda and the adjacent Envision Toyota in Milpitas are contacting customers of their sales and service departments and asking them to sell their cars, Shamilov said. Outside on the lot, Milpitas business analyst Eric Ho drove up in his black 2016 Honda Accord after getting a letter from the dealership. Any offer from Envision was going to have to be high, he said. “If I sell it to them, what am I going to drive in a car market that’s this tough?” said Ho, 28.At the Chevrolet lot in San Jose, the Cerans were weighing their options. The 2020 Tesla cost $70,000, and “we’ve never bought a car that expensive,” Gokcen said. For another $8,000, they could buy a new one, Yasin pointed out.
They had checked out a significantly cheaper electric Volkswagen ID.4 at a lot down the road but would have to wait a year for one. If they bought a pricey car now, and the market softens, their asset’s value could plummet, Yasin fretted. On Friday, the couple visited a Tesla showroom, found they could buy a new white Model Y with fewer features than the used blue one, for $2,000 less, and began the ordering process.
The easy days of people hitting auto lots and having their pick of models, options and colors, of bargaining for deals and pitting dealers against each other are expected to return — someday. “You’ve got a least a year if not longer before you see anything like a market that looks even close to the norm,” Drury said.